Don’t get me wrong, I’m not talking about a 50% loss or anything crazy like that.  I (almost) always set my stop loss at 1-2%, I set an approximate profit target and let price action tell me when to get out.  But the losses were still getting me down.  It got to a point to where if I lost two trades in a row, I would stop trading for a week because I thought I was trading poorly.

But as everyone knows, two losses in a row is not necessarily poor trading.  That is just how trading works.

So what is the solution to the “losing trade” blues?

I have found that asking these 5 questions after a loss have helped me keep things in perspective and take the next trade setup without lamenting over the last loss.  You may not have to use these review techniques all the time, but I have found it helpful to be able to come back to this list whenever I feel that my losing trades are affecting my psychology.

1. Do I know my trade?

Before trading any setup, you should backtest it on the currency pair (or market) that you will be trading, for as long a historical time period as possible.  I have found that Forex Tester is the best way for me to do testing in Forex, but there are other solutions out there for Forex and other markets.

Knowing the maximum number of losses in a row, biggest drawdown and other related statistics can prepare you for a few losing trades.  Every system will have a losing streak, but keeping your head clear during the streak is more important than the money.

So if you are in a losing streak or even if it was just one loss that is bothering you, go back to your backtesting results and remind yourself that it is all a part of how the system trades. Being able to answer “YES” to this question will give you the conviction to move forward.

2. Can I reverse what happened?

Regardless of how much money you lost, there is no way to reverse what happened.  What is done is done and you need to move on.  If you traded poorly then rejoice in the fact that NOW is the absolute best time to figure out what went wrong and try to correct it so it doesn’t happen again.

If you traded well and still lost money, then don’t beat yourself up over the 10,000 things that you could have done. That doesn’t do you any good.

Take the loss and move on.

3.  Am I revenge trading?

Everyone does a revenge trade from time to time, it is human nature.  But putting too many revenge trades together in a row can blow out your account pretty quickly.

Revenge trading is double trouble.  Once you get into revenge mode, you start throwing rules out the window.  Those rules are there for a reason…to make you money!

Then after the revenge trade, you beat yourself up for trading poorly and that can make you think that you are a bad trader. This leads to second guessing yourself and your systems.

If you lost your last trade, asking if the next trade is going to be a revenge trade can keep you out of trouble and psychological torment.

4.  Am I risking too much per trade?

You could be trading well, but just taking a little more risk per trade than you are comfortable with.  For example, you could see a setup that you know by heart and risk 3% of your total account on that trade.  In your testing, you know that the setup has a 65% win rate and will usually yield a 2:1 reward to risk ratio.

Over time, the trade will make money…according to your backtesting.

But is that 3% a little too much risk for you?  It may be OK for some people, but you have to protect your positive psychology and do what is right for you.  If you scale back to risking 1% on the trade, that may help you to see things more objectively and make winning and losing less of an emotional roller coaster.

5. Am I attaching too much of my self worth to this losing trade?

This was a big one for me.  I have this blog…I’m trying to make it as a professional trader…I have to win.  Anything less will be a public humiliation.

The situation will probably be different for you, but you get the idea.  If you really want to trade for a living, then you will make thousands of trades over your career.  However these trades do not define you.

Trading is one of the things that you do, but you are also a husband/wife, father/mother, friend, runner, volunteer, teacher, mentor, etc. Don’t define yourself by your trading, remember that you also fill other important roles in life.

If you keep your trading in perspective, you will feel less of a need to be right all the time and allow yourself to trade well.

How do you deal with losses?

That is just what I think, but I am interested in finding out how you deal with losses.  Feel free to leave your favorite tips below.

Photo: © Leloft1911 | Dreamstime.com

I have been trying to recreate actual trading conditions as much as possible.  That is actually pretty difficult during backtesting because there is no waiting (or you can pause the market indefinitely) and there is no real money on the line.

In order to recreate live conditions as much as possible, after I close and log a trade and imagine how I would have felt if that was done in my live account.  For me, this has been surprisingly effective and that is what brought me to that conclusion.

Why?

So the question naturally arises.

Maybe I am being too hard on myself?  Maybe I’m relying too much on the winnings?  Maybe I don’t have enough confidence in the system?

The answer was all of the above.

With this knowledge, I have been working towards evening out my perception towards winning and losing trades.

How?

I think I have to become comfortable enough with a setup to truly know what to expect in the long run.  In addition, I need to get away from the feeling that I HAVE to make money right away.  Just like in any other performance activity, the best things happen when you let them come to you.

Her ambitions put a strain on her family however and her long periods on the road led her husband Rick into the arms of another woman. In addition, their kids are out of control and need help coping with all the drama.

In order to fix her family, Melissa has to give up her dream. Find out if Tony can bring them back together in this episode:

Note: To watch the video in full screen, click the rectangle icon in the lower right corner after the commercial ends.

However, my ability to stay in a trade and see it to fruition is not as nearly as reliable as I would like it to be.   As I continue to work on this, I thought that I would at least jot down my thoughts that came about as a result of this trade.

Based on some of the comments and emails that I have received, this seems to be a common issue with other traders too and I hope these thoughts will help you too.

I dont’ know about you, but usually when I bail out of a trade early, it is for the following reasons:

• I didn’t have an exit plan going in
• I got nervous because because price became volatile
• I didn’t backtest the strategy I am trading

Volatility is OK, IF…

When things get really volatile, sometimes it is best to bail out, especially if you have a profit on the table.  This is a judgment call and should be exiting the trade because the volatility is happening on the time frame you are trading on and not because you get scared out on a significantly smaller time frame.

For example, if you are trading on the 1 hour chart, it probably isn’t a good idea to base your exit on the 1 minute chart.  The 1 minute chart will give you a heart attack if you are really trading based on signals on the 1 hour chart.  If you don’t believe me, try it.

Yes, I have been guilty of this many times too.

Not Excusable

The other two causes are just simply sloppy trading.  So what can I do to eliminate this from my trading?

• Backtest every trading system thoroughly and be comfortable with the risks
• Practice trading for at least an hour a day with Forex Tester 2
• Log my target price in my trading log
• Log the trading system that I am using on my trading log.  Hopefully, that will remind me to only trade “approved” systems.

What do You Do?

What do you think?  How to do you prevent yourself from bailing out early?  Feel free to leave a comment below.

This episode features John Rodriguez and tells the story of how he lost his wife in a senseless drive-by shooting. Since that time, he has been unwilling to work and unable to support his two young sons. The older son had to go to work to support the family and they were at a breaking point.

Find out how Tony helped them and how his method may help you find a breakthrough in your life. The transformation wasn’t easy, but it was nothing short of amazing.

Note: To view the video at full screen, click the rectangle icon in the lower right corner.

This episode features Juaquin Hawkins, former professional basketball player.  He has played all over the world and even played in the NBA for a period of time.

However, a career ending injury left him lost and without a job.  His house was close to foreclosure and he didn’t know what to do.  Here is how Tony helped him:

Note: Click the rectangle icon in the lower right corner to view the video in full screen.

In Slump Busting Techniques, Linda presents this material for the first time to a live audience.  Here is the full description of the audio recording from INO:

There are two types of traders – those who have had a slump and those who will! The majority of successful traders have gone through long, flat periods at some point in their careers. Linda Raschke presents some tools and techniques to not only pull you out of slumps, but also break through overhead ceilings. Trading is a performance-oriented discipline. The psychological aspects to trading can be 90% of the game. Linda shows you the three important weapons a trader can use to fight against the majority of trading hang-ups. These weapons will also improve your execution skills, your concentration and your consistency. Lastly, she shows three of the most powerful technical patterns to trade off. These setups will dominate any other technical pattern out there! Get psyched up to go for new account highs.

Recently, I have been much more interested in the psychological aspects of trading and how to improve my mental toughness and increase my profitability.

What does Linda think is important in becoming successful in trading?

• Perseverance
• A sense of challenge
• Resiliency
• Semi-automatic execution
• Relaxation

These are the elements that she feels not only keeps us in the game, but also helps us keep a balance in life.  I would have to agree.  My recent experiences with a stressful trading system has given me new appreciation for the beauty of a trading system where you just set your orders and let the market do its thing.

So how do you break a slump?  Linda believes that you first need to:

• Rule out a lack of knowledge
• Rule out a flaw in your system
• Rule out any major life issues
• Rule out the burn factor

If you are currently going through any of these things in your life or in your trading, you need to stop trading and take care of those issues first because it is almost impossible to trade if you are up against these problems.

Once you can rule out these factors, then you need to do the following to get back on track:

• Take full responsibility for your success in trading
• Be in the present and take the process one step at a time
• Exercise and take care of yourself
• Do your homework and set up a trading routine

Another thing that Linda mentions is that the best stock trader she knows went back and forth in his account for the first 3 years.  He would lose some, make it back, lose some, make it back.

She believes that this is just part of the process and losing makes us reflect on how we can do it better.  I can really relate to this because I am currently in a reflection phase in my own trading.

Linda also gives a few great suggestions on good trading books to read.  A couple of them were not trading related at all, but had correlations to trading psychology.  I bought the books and I will give a book review after I have finished them.

In conclusion, there was too much information in the recording to write about it all here.  There are some excellent insights about keeping your head in the game and I would highly suggest it.

Although most of the audio and video recordings on INO Premium are older, the good ones are timeless.  Some of them are bad, but the majority are good and I usually find myself learning something.

I think it is a great deal at $99.95 for the year.  There are hours of trading recordings from some of the country’s best traders.   It gives you a whole library at your disposal, which is much cheaper than going out and buying all these recordings.  Click here for more information.

Well there was a reason for doing the same thing before every game.  It got our minds focused on the game and was something familiar and calming.  Upon doing a little research, I found some pretty funny pregame rituals.  Click here to see some of the best ones.

The thing is that as traders, we need to have a pregame routine too.  I was listening to a couple of legendary traders talk about the importance of a trading ritual, so I figured it must be important.  Click here to see a recent post from fellow forex trader Ryan O’Keefe about his trading routine.

So I decided to adopt my own routine.  First I put in my earphones and crank up my iPod.  Then I do something similar to this:

I actually do play Low Rider by War before I start trading.  It has a good beat to which I can visualize myself making good trades and my account balance going up.  I always stop listening at the first break.

Next I create a new page in my journal.  I update my balances and carry over my open trades or open orders.

Then I scan my charts for possible setups with the pivot point trades I look for.  If there are any possibilities, then I note them in my journal and make sure my alerts are turned on so that my mobile phone gets pinged when a setup happens.

If there is nothing going on at that moment, I do some backtesting or log my closed trades here on the blog.   So that’s it!  Not much to it, but it does help me focus and get in the right frame of mind.

What is your routine?